Trade Constitution 2.0

Both Professor Howse and Simon raised an important issue in the China-Rare Earths panel report, whose full ramifications, I believe, would go beyond this particular dispute. To me, the panel’s ostensibly nebulous position on GATT Article XX denotes hermeneutical birth pangs for the “Trade Constitution 2.0.” What I mean by trade constitution is a certain legal-institutional mechanism that reconciles trade and societal (such as environmental) values, as most national or regional constitutions do. (Think of the ECJ’s Dassonville/Cassis de Dijon/Keck and the U.S. Supreme Court’s Dean Milk/Taylor etc.)

Under the Trade Constitution 1.0, the GATT jurisprudence suffered from the so-called “pro-trade” bias derived structurally from the dichotomy (the textual separation of general obligations, such as GATT Article III, and exceptions, such as Article XX). Thai Cigarettes is a case in point. The WTO attempts to overcome this pro-trade bias and embrace the “(sovereign) right to regulate” in various ways, including the new teleology (“sustainable development” and “an integrated, more viable and durable multilateral trading system”), the new side agreements (such as TBT/SPS) that eliminated the GATT-style dichotomy and explicitly stipulate the right to regulate, and some innovative interpretation securing regulatory autonomy while still taking into account negative trade impacts (the chapeau test in Gasoline and Turtle). So, there emerges the Trade Constitution 2.0.

Then, the birth pangs come from the residual influences from the old relics. Even under the Trade Constitution 2.0, the WTO tribunals might not be completely free from the old interpretive habits. In fact, many old languages in the GATT and GATT panel reports were copied and pasted in the new WTO agreements, such as the SPS/TBT. Of course, the WTO tribunal may recycle the old interpretation on the same language to some extent. The problem is that some interpretive confusion tends to inevitably arise in the course of the WTO’s attempts in rationalizing recycled interpretations (from the Trade Constitution 1.) within the new context of the Trade Constitution 2.0). Hence, the interpretive birth pangs, as seen in the recent TBT jurisprudence as well as here in the China – Rare Earths panel report (as Simon aptly observed in his post.)

The Appellate Body, more than panels, should take note of the structural difference between the Trade Constitution 1.0 and the Trade Constitution 2.0. My own prediction is that the AB’s hermeneutics on the Trade Constitution 2.0 would crystalize into the “evenhandedness” test along the line of a series of recent TBT-related case law. This is the same interpretive pathway that one could observe in the similar jurisprudence in the ECJ and the U.S. Supreme Court. To that extent, we can say “convergence” of trade constitutions.

The Trade Constitution 2.0, i.e., the non-existence of dichotomy, sheds critical light on every nook and corner of the WTO system, including the TRIPS and the China Accession Protocol. As future trade disputes concern more about non-tariff barriers of all sorts, the WTO tribunal will embrace the Trade Constitution 2.0 more often. More interpretive energy will be spent on issue of “how” a measure was applied, rather than “what” the measure was all about. In other words, it would become increasingly difficult for the WTO tribunal to second-guess the legitimacy of the measure in question, as the Thai Cigarettes panel did a long time ago. Instead, the AB is likely to focus more on procedural aspects of the measure, such as consistency (evenhandedness) and due process etc.

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Trade Constitution 2.0

Both Professor Howse and Simon raised an important issue in the China-Rare Earths panel report, whose full ramifications, I believe, would go beyond this particular dispute. To me, the panel’s ostensibly nebulous position on GATT Article XX denotes hermeneutical birth pangs for the “Trade Constitution 2.0.” What I mean by trade constitution is a certain legal-institutional mechanism that reconciles trade and societal (such as environmental) values, as most national or regional constitutions do. (Think of the ECJ’s Dassonville/Cassis de Dijon/Keck and the U.S. Supreme Court’s Dean Milk/Taylor etc.)

Under the Trade Constitution 1.0, the GATT jurisprudence suffered from the so-called “pro-trade” bias derived structurally from the dichotomy (the textual separation of general obligations, such as GATT Article III, and exceptions, such as Article XX). Thai Cigarettes is a case in point. The WTO attempts to overcome this pro-trade bias and embrace the “(sovereign) right to regulate” in various ways, including the new teleology (“sustainable development” and “an integrated, more viable and durable multilateral trading system”), the new side agreements (such as TBT/SPS) that eliminated the GATT-style dichotomy and explicitly stipulate the right to regulate, and some innovative interpretation securing regulatory autonomy while still taking into account negative trade impacts (the chapeau test in Gasoline and Turtle). So, there emerges the Trade Constitution 2.0.

Then, the birth pangs come from the residual influences from the old relics. Even under the Trade Constitution 2.0, the WTO tribunals might not be completely free from the old interpretive habits. In fact, many old languages in the GATT and GATT panel reports were copied and pasted in the new WTO agreements, such as the SPS/TBT. Of course, the WTO tribunal may recycle the old interpretation on the same language to some extent. The problem is that some interpretive confusion tends to inevitably arise in the course of the WTO’s attempts in rationalizing recycled interpretations (from the Trade Constitution 1.) within the new context of the Trade Constitution 2.0). Hence, the interpretive birth pangs, as seen in the recent TBT jurisprudence as well as here in the China – Rare Earths panel report (as Simon aptly observed in his post.)

The Appellate Body, more than panels, should take note of the structural difference between the Trade Constitution 1.0 and the Trade Constitution 2.0. My own prediction is that the AB’s hermeneutics on the Trade Constitution 2.0 would crystalize into the “evenhandedness” test along the line of a series of recent TBT-related case law. This is the same interpretive pathway that one could observe in the similar jurisprudence in the ECJ and the U.S. Supreme Court. To that extent, we can say “convergence” of trade constitutions.

The Trade Constitution 2.0, i.e., the non-existence of dichotomy, sheds critical light on every nook and corner of the WTO system, including the TRIPS and the China Accession Protocol. As future trade disputes concern more about non-tariff barriers of all sorts, the WTO tribunal will embrace the Trade Constitution 2.0 more often. More interpretive energy will be spent on issue of “how” a measure was applied, rather than “what” the measure was all about. In other words, it would become increasingly difficult for the WTO tribunal to second-guess the legitimacy of the measure in question, as the Thai Cigarettes panel did a long time ago. Instead, the AB is likely to focus more on procedural aspects of the measure, such as consistency (evenhandedness) and due process etc.